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Determining the Dealer Cost of a Car

Chapter 3: Setting The Price You Want To Pay

Section Introduction:

This chapter shows how to research vehicle prices and costs to determine the price that should be paid before ever entering a dealership. Whether buying or leasing, the common denominator is the dealer's invoice price and desire to maximize the profit margin. This information is publicly available through the sources like the Internet and through specialized publications to those who take the effort to find it. Researching a vehicle for this information, for the invoice costs of option packages and for the special details that can enhance a dealer's profit margin, can strengthen a consumer's negotiating position.

In short, information is the key to the good deal that we all want and this chapter discusses the information needed and why. A selection of valuable information sources is also included.

Shortcut to a good Total Cost

  1. Take the dealer's invoice price*

  2. Add the dealers invoice cost of any desired options*

  3. Deduct at least 50% of any dealer incentive*

    The total after these 3 steps is your opening bid.
    *Note: These three plus the holdback are the real sources of profit for the dealer in a sale and, as such, are the only real negotiable components. Don't allow extra things into the negotiation, like sales tax, to fudge the numbers. Let the salesperson know that you know what you are talking about, that you are basing your bid on the three considerations listed above and that the extras will be factored-in afterwards.

  4. Deduct any customer rebate

  5. Add applicable taxes

  6. Add the Freight Charge

  7. Add the dealer advertising fee

The total after these 7 steps is your Total Cost.

Determine the Dealer's Cost

  •  Be informed to have the power to get a better deal.

    • With all the resources out there, vehicle consumers can be better informed than ever before and can know more than just the Manufacturers Suggested Retail Price (MRSP).

    • Price lists and guides can be found online and on paper that will tell you the wholesale price of a vehicle so that you know what the dealer's cost is before you even walk into the showroom.

    • Look for other price factors; information about special offers like subsidized leasing, rebates and other manufacturer's deals can provide ammunition for your negotiation.

  •  Remember the holdback

    • The auto manufacturer's invoice price does not tell the whole story. A holdback is a quarterly payment (approximately 3% of MRSP) paid to dealers that reduces their cost below the listed invoice price.

    • The holdback will always factor in the dealer's profit expectation. A selling price of 1% below the listed invoice price (apparently selling at a loss) may still mean 2% profit for the dealer from the holdback quarterly payment.
      Note: A dealer is unlikely to sell below the invoice price without some manufacturer's incentive to sweeten the pot.


TIP: When dealers compete for your business - You Save!

Compare dealer prices from multiple discount dealers in your area using Edmunds.

With multiple price quotes you'll be able to get the best deal on the vehicle you want.

It's the fast, easy and headache free way to shop!

Although checks with auto manufacturers and their representatives to confirm the accuracy of the data, it makes no guarantee or warranty, either expressed or implied with respect to the data presented here. All specifications, prices and equipment are subject to change without notice.

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